Feb. 8 (Bloomberg) -- Australian Prime Minister Julia
Gillard’s tax on iron ore and coal profits raised A$126 million
($130 million) in its first six months, trailing targets and
denting her economic credibility seven months before a federal
election.

“Revenues from resource rent taxes have taken a massive
hit from the impact of continued global instability, commodity
price volatility and a high dollar,” Treasurer Wayne Swan, who
in October forecast the mining tax would reap A$2 billion in the
year to June 30, said in an e-mailed statement today. “Revenues
across the board are down very substantially.”

Gillard’s bid to promote her government’s economic
credentials is being damaged by weaker growth, lower prices for
Australia’s resources, and a strong local currency that’s
curbing tax receipts. She was forced in December to abandon a
pledge to return the budget to a surplus this year, with time
running out for her minority Labor government to gain ground in
polls ahead of the Sept. 14 election.

“This puts a severe dent in the government’s credibility
because it’s hard to say you can manage the economy when you
can’t organize a new tax correctly,” said Andrew Hughes, who
conducts political-marketing research at the Australian National
University in Canberra. “It shows they have put too much faith
on the resource cycle being able to hold up the economy.”

Hockey’s Claim

Gillard’s Minerals Resource Rent Tax, which puts a 30
percent levy on iron ore and coal profits, has drawn criticism
from companies such as Fortescue Metals Group Ltd., business
lobbyists and the mining states of Western Australia and
Queensland. The Tony Abbott-led National-Liberal coalition
claims the shortfall in revenue is an example of her
government’s fiscal bungling.

“Wayne Swan is the most incompetent treasurer in
Australia’s history,” shadow treasurer Joe Hockey told
reporters in Sydney today. Government programs that were to be
funded by the tax are now in jeopardy, he said.

Swan’s announcement today pre-empted disclosure of the
revenue raised by the taxation office. The opposition voted with
the Greens in the Senate this week to order the office to reveal
details of the revenue so far collected by Feb. 15.

In its October mid-year review, the government forecast a
budget surplus of A$1.08 billion in the 12 months ending June
30. It recorded a A$44 billion deficit last fiscal year. It cut
the estimated revenue from the mining tax to A$2 billion from a
A$3 billion forecast in May.

Surplus Backtrack

Swan backed away from the surplus pledge on Dec. 20 after
he said government revenues had been hit by a “sledgehammer.”

“The disappointing mining tax revenue confirm the
government’s quest for a budget surplus was a pipe dream,” said
Katrina Ell, an economist at Moody’s Analytics in Sydney. “The
hit to commodity prices from the global downturn seriously
dented expected revenues.”

The tax was designed by Gillard after she conducted a back-room party coup in June 2010 and defeated predecessor Kevin
Rudd, whose popularity with voters plunged in part due to an
advertising campaign conducted by the mining industry against
his proposed Resource Super Profits Tax. That levy drew miners’
ire by proposing a 40 percent tax on all mining profits,
including gold, nickel and uranium.

“It’s a double whammy for the government,” said Hughes.
“They’ve been hit in the revenue and you’ve got to expect they
will be hit in the polls for it.”

Weaker Prices

Weaker commodity prices and an elevated currency have
prompted mining companies including BHP Billiton Ltd. to put off
projects and cut jobs, while a construction slump forced
building-materials company Boral Ltd. to reduce payrolls.

Iron ore prices into China averaged about $117 a metric ton
in the six months to Dec. 30, compared with about $159 a year
earlier. Queensland coking coal averaged about $173 a ton in the
half, compared with about $250 a year earlier.

In March 2012, the Bureau of Resources and Energy Economics
expected Australian iron ore to average $140 a ton for the year.
In December, the government forecaster cut that to $128 a ton
after spot prices plunged.

Coal used to produce power has climbed 19 percent since
dropping to a three-year low of $78.05 a metric ton in October.
Japanese steel makers agreed to pay BHP a record low of $165 a
ton for metallurgical coal in the first quarter of this year,
UBS AG said in a Jan. 31 note.

“The MRRT is a top-up tax that has come on top of A$20
billion paid in tax and royalties in the last 12 months by the
Australian mining industry,” Ben Mitchell, a spokesman for the
Minerals Council of Australia, said by phone. “It is a de-facto
super-profits tax and it’s working as it’s meant to work.”

Falling Support

Gillard has seen support for her party slump in recent
weeks. Labor fell 5 percentage points to 44 percent on a two-party preferred basis, with Abbott’s Liberal-National coalition
surging 5 points to 56 percent, according to a Newspoll survey
published in the Australian newspaper Feb. 4. The measure is
designed to gauge which major party is likely to win the seats
required to form a government.

“The sharp fall in commodity prices in the back end of
2012 was a key reason why the government had to step away” from
its surplus target, said Tom Kennedy, an economist in Sydney at
JPMorgan Chase & Co., which expects about a A$15 billion deficit
this fiscal year. “It’s really hitting their bottom line and it
just works in conjunction with the decline in total business
taxation revenue that we’ve seen.”